When it comes to investing (and personal finance in general), I often like to use the saying, “When in doubt, do nothing!”
Most people roll their eyes when they hear this. Some common responses include:
- “The market is falling apart, I’m not sure doing nothing makes a lot of sense.”
- “I’ll feel better if we raise some cash and/or trim some of my equity exposure.”
- “But I’m feeling like things are getting out of my control.”
- “But when are we ever not in doubt?” (hint: we’re almost always in doubt about the markets)
- Or more recently, “Iran just shut the Straight of Hormuz and gas prices are going crazy, we’ve got to do something!”
But here’s the thing, doing nothing is very powerful. A lack of action (or in many cases a lack of re-action) in the face of market turmoil simply indicates that you are embracing your financial plan and investment strategy. By doing nothing, you are in effect saying to yourself, “I’ve planned and prepared for market ups and downs. I’ve got a long-term plan that will very likely see me through these crazy times.” That doesn’t mean that we stick our heads in the sand and ignore whatever is going on around us.
Break Glass In Case Of Emergency
A few years back, I read about a financial advisor that, as part of their initial planning process, required clients to sign an agreement prohibiting them from deviating from their financial plan except in case of emergency. And to signify that any given situation was a bone fide emergency, the client had to literally “break glass in case of emergency.” That is, the advisor had a glass case for each client, and the client had to physically break the case open before the advisor would declare an emergency and help them to deviate from their financial plan. As long as the glass case was intact, the client was committed to the financial plan.
This may sound like extreme overkill, but apparently it worked. Whenever a client came into the advisor’s office and wanted to declare an emergency, the advisor would first try to counsel the client about the potential consequences of drastic actions. But if unsuccessful, the advisor would simply retrieve the client’s glass case and hand them a hammer and some safety glasses. So armed and forewarned, not one single client could bring themselves to actually smash the glass case open. Perhaps they felt silly holding a hammer and getting ready to destroy a perfectly good glass case. Maybe they didn’t want to make a mess of shattered glass on the carpet. Or perhaps being confronted with the stark reality of having to “break glass in case of emergency” dissuaded them. Whatever the reason, the advisor’s “trick” here was useful in helping clients see that they had some agency and control in the situation.
And you know what? Sticking to your plan and staying disciplined are about the only things that we can actually control in this crazy world. We can’t control what the President or Congress does or does not do. We can’t control how the markets might respond to any given situation. We can’t control the pace of technological development. And we certainly can’t control these giant and complex economic systems that affect so many aspects of our lives. We can make predictions or educated guesses about what might happen, and use those predictions to inform the planning process. But we don’t truly have any form of control in those systems or processes.
However, we do have a small zone of control. First, we can plan and prepare. Then, we can commit to sticking with our plan. And finally, we can maintain our plan over time and make small adjustments or course corrections if needed.
So even though we certainly do live in interesting times, don’t be afraid to do nothing!
